Sanderson Farms responds to market challenges in Q2

by Joel Crews
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Joe Sanderson, chairman and CEO, Sanderson Farms
Sanderson Farms is balancing strong demand with the impact of avian influenza and capacity issues.

LAUREL, Miss. – During a June 28 conference call, Sanderson Farms Inc. Chairman and CEO, Joe Sanderson Jr., detailed the company’s performance during the second quarter of fiscal 2015.

Lower grain cost and strong demand for chicken were positive factors in the company’s first quarter. Sales volume of fresh and frozen chicken increased 10.6 percent over last year reflecting heavier birds. Meanwhile, price for chicken sold slipped. Sanderson also addressed the negative impact on the company’s export business as a result of avian influenza (AI) and the positive affect of a foodservice industry that continues to improve.

Net sales for the quarter increased 8.5 percent to $716.6 million compared to $660.7 million last year. This reflected an increase of pounds of poultry sold that was offset by a decrease in price per pound. Net income for the second fiscal quarter, ended April 30, was $71.2 million ($3.13 per share) vs $51 million ($2.21 per share) during the same period last year.

Sanderson addressed AI saying its biggest impact is on export markets. Thanks to the industry’s widespread efforts to ensure good biosecurity practices combined with the shorter life cycle of chickens versus turkeys, chickens are less vulnerable. “That does not mean our flocks are free from risk, but we do believe the primary risk is a market risk,” said Sanderson.

“Dark meat remains under pressure for several reasons,” he said, which include factors such as politics, avian influenza, economic factors and the strength of the US dollar. AI has been the reason for some countries banning imports of chicken products, while others — including Russia and China — are banning shipments for political reasons. Oil-dependent countries, such as Angola, are challenged to afford chicken, while the strength of the dollar is weighing on many countries challenged to buy American products. “The result of all these things is a weak export market and weak dark-meat pricing,” and are conditions Sanderson doesn’t see changing in the foreseeable future.

Soybean meal and corn prices were lower than last year’s second fiscal quarter and production excess is something Sanderson is monitoring as the breeding flock is getting larger. Recent increases in pullet placements, he said, have been the source of concern for many in the industry and what it might mean for future chicken supplies. Sanderson warns that because of eggs earmarked for shipment to Mexico, it would be erroneous to assume the additional pullet placements imply a guaranteed increase in domestic production.

Sanderson Farms whole roasting chicken and chicken leg quarters
Sanderson Farms will continue using antibiotics in chicken production.

Even so, “The industry is expanding,” Sanderson said. This is in response to the increased margins the industry has seen the past two years. “We continue to believe the industry will process between 3 and 4 percent more head of chickens during 2015,” he said, adding that weight gains are expected to add another 3 percent growth to pounds processed.

At some point the industry will run into a “processing capacity ceiling” but it’s anyone’s guess what that ceiling might be, according to Sanderson. Referencing what the additional capacity might mean in 2016, Sanderson said, “We’ll know when we get there.”

Despite higher production numbers, prices have sustained in a positive manner for chicken, while other protein prices remain high. Beef prices will remain elevated next year, said Sanderson, and looking forward to next year economic factors like rising employment rates, wages and gasoline prices will influence what if any production surplus there will be.

Sanderson also addressed the controversial topic of antibiotics and the groundswell of support among many some retailers, foodservice companies and processors.

“After very deliberate, careful and measured consideration of this issue, we informed our customers last week that we will continue our responsible use of antibiotics when prescribed by our veterinarians,” Sanderson said. “This decision is based on animal welfare, environmental considerations and food safety.”

Sanderson’s new complex in Palestine, Texas, is regarded as a successful startup, however excessive rain as of late has resulted in delays in building chicken houses there. This delay will postpone the company’s goal of moving 900,000 birds per week by November, but it still plans to meet its goal of moving 600,000 birds per week beginning in July.

Meanwhile plans for the company’s new facilities in St. Pauls, NC, is proceeding as scheduled, with construction planned to begin in June.

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